Affordable Care Act could face new hurdles

February 17, 2013

A small omission in the voluminous Affordable Care Act has the potential to create a major headache for the federal government, according to a Buffalo insurance broker who has worked with an Altoona doctor to develop a free clinic model to help the working poor in the region.

The omission could spur companies in states like Pennsylvania that don't set up insurance exchanges to sue the federal government over fines for not offering health plans, according to Patrick Reilly, who worked with Dr. Zane Gates on clinics in Altoona and Indiana, Pa.

The 974-page act calls for states to create competitive insurance clearinghouses or "exchanges" for people who lack health care coverage through work. The act mandates that individuals buy health insurance and allows those earning up to 400 percent of federal poverty level to get tax credits to help pay for their coverage, according to Reilly.

The federal government can offset the cost of that subsidy by levying fines against employers with 51 or more full-time equivalents that don't offer health insurance. The fine is $3,000 for each employee who receives a subsidy or $2,000 per employee, excluding the first 30 - whichever amount is less, according to Kaiser Permanente's Focus on Health Reform.

The trouble is that while the act specifies that low-income people who buy insurance through state exchanges qualify for the subsidy, it doesn't say the same for those obtaining insurance though federal exchanges that Washington will set up in states that don't create their own.

The Department of Health and Human Services and the Internal Revenue Service have said they will ignore the omission in the law and allow tax credit subsidies for those who buy from federal exchanges, according to Reilly, David Hogberg of Investor's Business Daily and Peter Suderman of reason.com.

But rather than a fix, that is the crux of the problem, Reilly said.

If workers can't get insurance through their jobs and get it instead through a federal exchange - obtaining the low-income subsidy despite the omitted clause in the law - their companies will face fines.

Those fines might give the companies grounds to sue, claiming the government "has no legal standing" to grant the subsidy, hence it has no legal standing to levy the fines designed to offset the cost of the subsidy, Reilly said.

"The fact that you [the federal government] gave the subsidy is not my problem," Reilly said, speaking for a hypothetical aggrieved company.

The omission might seem to be a mere oversight, but some observers believe it was deliberate, according to Reilly.

Those observers maintain the hope was that by making the subsidy dependent on states setting up their own exchanges, all of the states would do just that, eliminating the need for the federal government to bear the cost of settting up exchanges, he said.

"They wanted the states to be the partners to do the heavy lifting," he said.

The federal government didn't expect that some states like Pennsylvania would turn down the opportunity, he said.

"This newest glitch in the law has the potential to seriously complicate implementation of Obamacare," especially given the continuing mandate in the law for individuals to buy health insurance, Suderman wrote.

"If [residents] can't get access to the subsidies, they're going to be a lot less likely to apply" for insurance, he wrote.

"This is one issue out of many to get this [law] implemented correctly," Reilly said. "It's going to be a nightmare."